Stock Market Update

[BRIEFING.COM] The S&P 500 (+0.5%), Nasdaq Composite (+1.1%), and DJIA (+0.2%) are higher just after midday as investors respond favorably to a softer-than-expected July employment report that has eased expectations for additional Federal Reserve tightening.

The report showed no payroll growth in July alongside a sizable downward revision to June, prompting a pullback in Treasury yields and a notable shift in rate-hike expectations. The probability of a 25-basis point increase at the September FOMC meeting has fallen to 43.9% from 55.0% yesterday, while the odds of at least one hike by October have dropped to 58.9% from 71.0%, according to the CME FedWatch tool. That friendlier rate backdrop is showing up across several growth-oriented and interest-sensitive areas of the market.

The information technology sector (+0.9%) is among the leaders as the PHLX Semiconductor Index (+2.1%) extends this week's rebound, while software stocks are also enjoying a strong session. The iShares GS Software ETF (IGV) is up roughly 3.0%, supported by a positive post-earnings reaction in Cloudflare (NET 306.71, +22.28, +7.83%) and another sharp gain in Palantir Technologies (PLTR 170.06, +14.14, +9.07%). Datadog (DDOG 238.68, +9.39, +4.10%) and AppLovin (APP 345.70, +10.03, +2.99%) are also reclaiming a portion of yesterday's post-earnings losses.

The consumer discretionary sector (+1.4%) is another standout, with gains in Amazon (AMZN 275.14, +2.88, +1.06%) and Tesla (TSLA 327.89, +8.36, +2.62%) combining with a strong post-earnings move in Airbnb (ABNB 174.50, +22.86, +15.07%) and notable strength across homebuilders. The iShares U.S. Home Construction ETF is up 2.0% as lower yields provide support to housing and other rate-sensitive areas.

Participation remains broad beyond the largest stocks. The Russell 2000 (+0.9%) and S&P MidCap 400 (+1.3%) also hold solid gains, reinforcing the idea that today's advance is being driven by more than just another rush into mega-cap technology.

There are still a few pockets of weakness. The communication services sector (-0.3%) is among the weakest S&P 500 groups as The Trade Desk (TTD 13.96, -3.71, -20.98%) plunges following its earnings report, while Alphabet (GOOG 354.26, -2.36, -0.66%) continues to face pressure after reports earlier this week of several senior AI departures. Alphabet is currently the only "Magnificent Seven" component with a week-to-date loss.

The energy sector (-0.4%) also lags despite another increase in crude oil prices. WTI crude is up $0.95 (+1.2%) to $78.23 per barrel, but the group is giving back some of yesterday's outsized gain.

So far, today's action reflects a clear shift in the market's focus from yesterday's oil-driven pressure to a more supportive policy backdrop. Lower yields and reduced expectations for further Fed tightening are helping revive demand for growth and rate-sensitive stocks while keeping participation relatively broad across the market as stocks look to cap an impressive week on a higher note.

Reviewing today's data:

• The July employment report falls into the domain of "bad news is good news." Participants are recognizing that nonfarm payroll growth was weak (actually, there was no growth), that wage inflation disinflated, and that the labor force participation rate continues to dwindle.
  • The key takeaway from the report is that it was soft enough, presumably, to keep Fed officials in a wait-and-see mode, such that they could see a better case now for not raising the target range for the fed funds rate at the September FOMC meeting.